Eskom’s madness damages SA jobs

Columnists / 2 November 2012, 08:00am

Donwald Pressly.

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Electricity pylons carry power from Cape Town's Koeberg nuclear power plant July 17, 2009. South Africa will need 20 gigawatts (GW) of new power generation capacity by 2020 and would require double that amount a decade later to meet rising demand, the country's power utility said September 7, 2009. Picture taken July 17, 2009. REUTERS/Mike Hutchings (SOUTH AFRICA ENERGY BUSINESS)

If the National Energy Regulator of SA doesn’t stop Eskom in its madness, it would simply “kill the goose that lays the golden egg”, as the Department of Trade and Industry (dti) described it this week.

A 16 percent rise each year for a five-year period – with another 10-year period of above-inflation hikes promised after that – will destroy any prospects of economic growth. It will destroy jobs in their thousands. It will close down factories by the score and, possibly, achieve in record time the economic devastation President Robert Mugabe has failed to unleash next door through reckless policy stances.

Just a glance at a graph produced during hearings on the medium-term expenditure framework at the National Assembly trade and industry committee this week tells the story of the damage the increases have caused since 2008. Jobs in the manufacturing sector dropped from 1.3 million to 1.15 million between 2008 and this year.

The impact of 25 percent and above increases since then have been devastating. Of course, these hikes have been carried out even as top officers get stellar bonuses that make the yearly salaries of most taxpayers look like pittances.

Next week a number of foundries will put forward arguments why it doesn’t make business sense to carry on trading if the price of electricity continues to rocket.

From the government’s side, the repeated argument is the required build programme was not carried out when it was cheaper to do so. Committee chairwoman Joan Fubbs went so far as to blame the apartheid government for not building new infrastructure in the 1970s and 1980s. She, of course, as an ANC MP, can’t be seen to be criticising the leadership of the ANC in the 1990s and 2000s for doing even less.

The problem of mounting electricity costs has a lot to do with the lack of ingenuity of a state-owned corporation. Eskom has a monopoly on power generation, transmission and much of the distribution. The model is wrong.

While the Economic Development Department has been waging a war on private sector monopolies – probably correctly – it stays quiet about state monopolies. They tend not to work because they are built on a foundation of administrative inertia.

During the debate on the causes of the power supply problems and high costs of production, ANC MPs tended to focus on the mark-ups by municipalities on the Eskom base price. They are astonishingly high. Johannesburg and Tshwane happen to be among the highest at about 700 percent. Cape Town, which is opposition ruled, is more than 300 percent.

Nelson Mandela Bay will be up by about 540 percent. This revenue cross-subsidises other services, including water and waste, in this way. If that revenue tap was switched off, the already troubled third tier of government would be strangled. Ironically, the mark-ups at ANC ruled municipalities tended to be the highest.

What a fine mess our state power monopoly has got the country into. The Manufacturing Circle said more reasonable progressive hikes could be one solution. Subsidies to industry could also be considered. That will mean, however, that a whole new ream of red tape will arise. The circle points to Brazil, which is cutting the cost of electricity next year.

Eskom’s massive grip on the sector needs to be relaxed. Ways of involving the private sector in power generation that are economically feasible have to be found. Somewhere, someone has to be found who can think out of the electricity box and lead the country to a solution. Throwing even more money at Eskom isn’t an option.